MUMBAI: The Economic Survey’s observation that the government bears an implicit subsidy of 6% on gold consumed by the middle class, has raised expectations among traders that tax paid to buy jewellery could rise to reduce this subsidy.
However, most in the trade expect that the tax on jewellery would rise only when the government finalises the GST slab for jewellery and then tinkers with the 10% import duty. The GST Council is meeting in mid-Feb to set the GST rates for a variety of commodities and trade expects the rate would be set for gold then.
According to the Economic Survey 2016-17, the subsidy on gold works out to be 0.08% of GDP, or Rs 10,800 crore (overall GDP Rs 135 lakh crore). That’s more than the benefit provided to middle class travellers by sleeper class on railways (Rs 9002 crore).
Expectations of trade varies from the tax rising to 14-16% once GST is implemented from July this year.
MMTCBSE 2.87 % Pamp’s MD Rajesh Khosla said GST on jewellery will first have to be determined before the government could take a call on “tweaking” import duty, currently at 10%.
“The government feels it should tax gold at 18%, but gets only 12% (10% import duty plus 1% excise plus 1% VAT). It’s a fit case to levy GST at 4%,” said Surendra Mehta, national secretary, India Bullion & Jewellers Association (IBJA). Mehta adds that the government is unlikely to wipe out the complete subsidy at one go and may hike it to 14% instead.
However, Nitin Khandelwal, chairman of the largest federation of jewellers, All India Gem & Jewellery Trade Federation (GJF) cautions that any move to increase tax on jewellery from the current 12% would incentivise “organised smuggling.”
GST on jewellery should be fixed at 2%,” said Khandelwal. “The import duty could remain at 10% and the government could mandate that imported bullion bars be sold only from B-to-B and not B-to-C as there’s no value addition involved unlike when bars are converted to jewellery.”
GJF claims that Indian jewellery being hand-made costs 10-17% more than that manufactured by Turkey, Singapore and other countries where it’s machine made and cost of production is only 1-3%.
Taking price at Rs 30,000 per 10 gm for gold, duty plus cost of production make 100 gram jewellery costlier by Rs 60,000 in India compared to that imported into Dubai from 25 countries. It tax is raised from 12%, it would incentivise residents travelling to Dubai to don the purchased jewellery ..